Sovereign Debt in a Warming World: Are Credit Ratings Responding to Climate Risks?

Thomas Barnebeck Andersen

Kyklos, 2025, vol. 78, issue 4, 1479-1495

Abstract: Investors and policymakers increasingly worry that climate change threatens sovereign debt. While recent studies find a negative effect, they typically estimate models assuming a time‐invariant impact and rely on climate variables endogenous to economic and policy conditions. This paper addresses both concerns by employing a long‐horizon, nonactionable, external measure of climate risk from the Notre Dame Global Adaptation Initiative, interacted with year‐fixed effects to capture any time‐varying impacts. Analyzing sovereign issuer default ratings from major agencies, I find no evidence that climate risk systematically affects ratings or that its influence has evolved over time. I confirm these results using climate disaster data from the Emergency Events Database. These findings likely reflect credit rating agencies' short‐ to medium‐term focus on economic fundamentals rather than on long‐term climate risks.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/kykl.70002

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:kyklos:v:78:y:2025:i:4:p:1479-1495

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0023-5962

Access Statistics for this article

Kyklos is currently edited by Rene L. Frey

More articles in Kyklos from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().